CRA Audit Triggers: What Are They?

The CRA has a wide range of powers and an audit can be frightening. It's wise to try to avoid getting audited by the Canada Revenue Agency? Here are a few CRA audit triggers that you will want to avoid.

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Worried About an Audit? Read these CRA Audit Triggers

No one wants to be audited by the Canada Revenue Agency (CRA). Even if your tax returns are 100% accurate, and you have all of the documentation you need to support your claims, an audit is still a stressful process.

Here are a few things that may trigger a CRA audit.

CRA Audit Triggers

If you’re looking to avoid getting audited, you likely want to avoid any of the following:

Higher than usual expenses

If the CRA believes that you are claiming higher expenses than someone in your position usually would, it will likely get suspicious and want a closer look at your books. This is also true if you have claimed significantly higher tax deductions or credits than you have in previous years.

This means that you’ll need to keep very accurate records of your expenses and retain all documentation in case the CRA comes calling.

Inconsistencies with third parties

The CRA’s “matching program” is a situation where the agency compares the information provided by individual taxpayers with details provided by employers, financial institutions and other third parties. If these numbers don’t match, you could find yourself being audited.

Repeatedly claiming business or rental losses

If you frequently claim losses on a business or a rental property, this is certainly one of the CRA audit triggers. If this happens, you’ll need to prove that you’re running a legitimate business and claiming all sales, and have proof to back up your claims.

Having the right documents to prove your case is crucial in an audit.

Large swings in income

The CRA likes consistency. It believes that most people have a pretty similar financial year each year. If you’ve been reporting very large swings in income, you could get audited. The CRA will want to know what’s going on and why your financial situation changes so frequently.

You make less than those around you

If you’re reporting a much lower income than others who live in the same neighbourhood as you, the CRA might be interested in knowing how you can afford to live where you do. It might believe that you are not reporting some of your income, so it will want a closer look at your books.

Being self-employed

Self-employed persons are audited by the CRA far more often than those who work for employers and earn a regular paycheque. Since you don’t get a single T-4 slip that clearly states your income, there’s a higher than usual chance that the CRA will want to audit you and check out how much you earned. This is especially true if you claim home office expenses or other deductions.

Working for certain industries

If you work in construction, retail, or the restaurant industry, you’re more likely to be audited. The CRA considers working in these industries to be CRA audit triggers since these businesses are often heavily cash-based. Getting paid in cash makes it a lot easier to stash your income “off the books” and claim that you’re making less than you actually are.

You own offshore assets

If you own assets abroad, the CRA will likely want to know more about them and audit you to get this information. In some cases, they may get access to this information through international tax treaties. It will want to make sure that you are properly declaring all foreign income.

As you can see, CRA audit triggers are very broad. However, if you keep good records and have proof to back up your claims, you can survive a CRA audit. Working with a professional is certainly a very good idea. At Farber Tax Solutions, our team of experienced accounting, legal, and ex-CRA professionals can work with you and help you at every stage of the audit process. We make sure your rights are protected and that your case is presented fairly. Contact us today for more information.

Farber Tax Solutions can help you successfully deal with CRA problems. We utilize the experience of our tax experts to:

1| Offer a comprehensive solution that is focused on achieving the most favourable possible outcome for your tax issue;

2| Communicate with the CRA on your behalf and navigate the entire CRA dispute process; and

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Farber Tax Solutions is a tax dispute resolution firm serving clients across Canada. Our team of ex-CRA professionals at Farber Tax Solutions provide effective tax solutions and the tax lawyers from our affiliate: Farber Tax Law, ensure that you get high-quality litigation services and legal advice. This ensures that you get holistic and robust tax solutions. We have built our reputation on outstanding client service and are committed to helping you succeed in your tax matter.

*Farber Tax Law is an independent law firm affiliated with Farber Tax Solutions in Ontario, Canada **Past results are not necessarily indicative of future results and the amount recovered will vary according to the facts in individual cases.